Whoosh! Valeant Getting Hammered Pre-Market — Off ANOTHER 16 Per Cent — As Call Wears On And On. . .

Um — make that a new 37 per cent down bubble — in the first hour, on the NASDAQ. Now down a staggering 44 per cent on the day — near noon-time EDT; Pershing Square was halted for a bit, as well this morning. Pershing Square’s losses are over $2 billion since mid-last year, on Valeant. Afternoon trading has the name off over 50 per cent — now, in my estimation, that is an OVER-reaction. Time to buy.

[The risk of default is more theoretical than real. Lenders will offer waivers, for a series of fees. End — updated portion. Namaste.]

It may seem gratuitous to take pot shots — now that the spiraling debt load at Valeant has been exposed — by a roll-back of prior price increases on, in many cases, older drugs. Even so, today’s call is also a reminder that there is a reason to watch GAAP results, as a stand-alone measure — and not be too terribly swayed or seduced by the ever adjusted EBITDA (i.e., non-GAAP) numbers a company like Valeant offers Wall Street.

. . . .The filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 will be delayed pending completion of the Company’s ongoing review of certain historical financial statements. As a result, the Company will not file its Form 10-K for the year ended December 31, 2015 within the 15-day extension period provided by Rule 12b-25(b).

The Company is working diligently and intends to file the Form 10-K as promptly as reasonably practicable.

Under the various indentures governing the Company’s outstanding notes, if the Company does not file the Form 10-K by March 15, 2016, the Company will be in breach of the reporting covenant in the indentures and the trustee or holders of at least 25% of any series of notes may deliver a notice of default. The Company then would have 60 days from the date of receipt of a notice of default to file the Form 10-K and thereby cure the default. If the Company does not cure the default by the end of the 60-day period, the notes may be accelerated by the trustee or holders of at least 25% of the series of notes that provided the notice of default. The acceleration of one series of notes could result in a cross acceleration to other outstanding series of notes.

The occurrence of a default under the notes would result in a cross default under the Company’s bank credit agreement. The banks would be able to accelerate the loans under the credit agreement as a result of this default only in the event the Company does not file the Form 10-K before the 60-day cure period described above expires. In addition, if the Company does not file the Form 10-K by March 30, 2016, a default will occur under the Company’s bank credit agreement. The Company then would have 30 days to cure the default.

The banks would be able to accelerate the loans under the credit agreement as a result of this default only in the event the Company does not file the Form 10-K before the 30-day cure period expires. During the pendency of a default under the credit agreement (including a cross-default stemming from a breach of the reporting covenant in the note indentures caused by the Company’s failure to file the Form 10-K by March 15, 2016), the Company would not be able to draw on the revolver. . . .

Eesh. The graphic at right includes a photo from a few years back, when CEO Pearson, and Bill Ackman (head of Pershing Square) were close partners in drug company acquisitions (that is to say, on much friendlier terms) — but Mr. Ackman has lost billions on Valeant in the last four months — so the relationship has become at least semi-hostile, as Pershing Square has advocated for a sale of the B + L businesses — to pay down debt (as I had suggested would almost certainly eventually be required, some three years ago).

Even so, I suspect Mr. Ackman would have opposed a switch of CEOs, at this point.